ENERGY EFFICIENCY OF INDONESIA’S SUGAR INDUSTRY BASED ON ECONOMIC FRAMEWORK: STOCHASTIC METAFRONTIER ANALYSIS

Abstract

This study investigates the efficiency of energy use and technology gap in the Indonesian sugar industry and the factors influencing energy efficiency. Using the firm-level data of sugar mills in 42 regencies in Indonesia from 2010 to 2014, this study applies the meta stochastic frontier based on the input distance function. The metafrontier analysis is applied in sugar mills in the East Java province and other provinces in Indonesia. All the data used in this study are the secondary data taken from the Indonesian Central Board of Statistics. The results reveal that there is a large room to save energy consumption in this industry. The mills in East Java provinces have higher energy efficiency, technology gap ratio, and metafrontier energy efficiency compared to the mills in other provinces. According to the metafrontier energy efficiency, energy inefficiencies in both groups come from operational inefficiency and technology gap. The size of the mills and age of the mills have a positive relationship with the energy efficiency of sugar mills and the size of the mills is positively related to the technology gap ratio. Meanwhile, the productivity of labor and the types of ownership do not affect the energy efficiency and technology gap.